Selling turnkey properties after 5 years to avoid CapEx?

[Johannes Schunter]

Hi all! I am new here and so far learning a lot! After a profitable sale of my primary home (pure luck, bought a NYC condo in 2011 and prices went up crazy since then) I am now trying to come up with my own 10-year plan to invest in real estate more strategically. Here's the plan, and I would love your feedback on it:

I have $200,000 in cash and I want to buy eight $100,000 turnkey SFHs with a 80% mortgage and $4000 closing cost on each. Each property will already have a tenant and will cash flow at around 6% with min. $100 net cash flow per door (after mortgage, tax and insurance, I'm calculating 5% for vacancy, 10% for maintenance and repairs and a flat amount of $150 for capex reserves per house). This will mean a monthly cash-flow for me of $800 for my eight houses.

Now here is my question: Since the turnkey properties are newly rehabbed with all big ticket items (old roof, old water heater, etc.) taken care of for a while, one could argue that I will have only very few capital expenditures during the first few years, and will only need the capex reserve IF I hold the property long-term (say 7+ years). Would it be then a viable strategy to plan on selling each property after 5 years (assuming that the selling closing costs of $7000 might be covered by a minimal annual appreciation of 1-2%), exchanging them for new turnkey properties, and in turn reduce my capex reserve for each of my houses from $150 to just $50 per month, since I don't have to budget for these long-term expenses? This approach would increase my net cash flow to $200 per house, to a total of $1600 for my eight houses.

Do any of you invest in turnkey properties this way, and do you think this approach works? Or have I missed something in this theoretical model? Thanks much in advance for your advice!

(Please note that this is not a discussion about whether turnkeys are in general a good choice or not, for various reasons I've made the decision that out-of-state turnkey is the best strategy for me personally).

[Larry Fried]

@Johannes Schunter I think your plan to reduce your capex budget for turnkey that are truly have all new mechanical and roof is probably fine in concept, especially since you have a 10% for repairs set aside as well.  Still, always plan for the unexpected.  Five years from now could be a good time to sell or not, depending on the market on where they are on the economic and real estate cycle.  Generally when buying turnkeys I advise investors to expect to hold on to the property for a minimum of 5-10 years.

I also want to point out that unless you are planning to finance some of those homes under a spouse's name, then you will be limited to 5 conventional mortgages at 20% down, numbers 6-10 requires 25% on SFR and 30% on MF.